Lapid has broken no economic laws

Avi Temkin

The simple reason is that there aren’t any.

Quite a few economists were insulted by the way in which Minister of Finance Yair Lapid dismissed their criticism of his plan for a full VAT refund (zero VAT) on the purchase of a first home. Their undisguised and justified ridicule of the analytical capability of a man with no economic knowledge was echoed in numerous articles which mentioned the need to recognize "economic laws" - the veracity of which is unchallenged, and which will bring disaster on anyone who opposes them. Some critics went even further, and decided that Lapid's act was not a sin against economic laws, but was "socialism" - the ultimate offense in their eyes.

There are enough reasons and arguments for opposing Lapid's plan - the granting of a tax break for the wealthy, the creation of a budget hole that will have to be filled by cuts in social spending, the spurring of housing demand that will drive up prices for people who are not eligible for the tax break, and that Lapid is laying the foundations for a black market in obtaining permits for the VAT exemption - but have what these to do with "economic laws" and "socialism"? What are these laws that we are supposed to accept as if they are laws of physics and chemistry?

Those who claim that there are "laws" in economics are trying to persuade their readers and listeners that we are talking about scientific equations free of normative judgment. But every comment by an economist involves a value statement, either normative or conceptual. In other words, there are no "laws" in economics, but statements based on preferences, political positions, and social agendas. Behind every "law" is an entire gamut of assumptions about what is good and bad, who should be helped and who ought to be sacrificed.

Some of the people now talking about "economic laws" previously claimed that lower taxes would necessarily generate growth, and that cutting them would help the poor. The laws of economics once said that privatization resulted in efficiency and benefited the public. The laws of economics also once proclaimed that the central bank should engage solely in fighting inflation, and should not concern itself with economic growth. The "sellers" of these laws once tried to explain why financial regulation was bad and prevented healthy "innovation" in complex financial instruments.

In economic policy, nothing is "objective", not in the US, not in China, and not in Israel. Every policy creates a reality on the basis of value decisions, and on the basis of conceptual beliefs. Lapid's plan does not "contravene logic"; from his perspective, it is supposed to benefit a segment of the population whom he sees as potential supporters, while others will have to fund it.

This is an outcome of planning, analysis, and deliberation. It's true that someone who thinks about a more just and equitable division of budget resources might consider this plan to be unacceptable, another link in a long chain of actions that have brought Israeli society to its present state. We can assume that every prime minister and finance minister consider that their cuts in welfare budgets, the granting of tax breaks to huge corporations, the privatization of public services, and so on, were part of a logical plan of action. None of them has expressed regret. At the time, when each these measures were taken, explanations and arguments were always found about the factors that caused the government to privatize education and offer tax breaks to billionaires and multinationals.

The difference now between those moves and the ones taking place now is the lack of confidence in government moves felt by a substantial part of the public. This is what makes the policy transparent.

People have learned to examine the results of all of such measures, and decide whether they conform to their values and goals. In the end, each of those measures has the same validity and the same result as Lapid's initiative. The difference is that the public is no longer willing to buy the claims that the policy is "objective", and it has ceased to believe in "economic laws".

Published by Globes [online], Israel business news - www.globes-online.com - on March 31, 2014

© Copyright of Globes Publisher Itonut (1983) Ltd. 2014

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